Berkeley passes soda tax, but you’ve likely been paying one for years

SAN FRANCISCO (MarketWatch) — Berkeley, Calif., passed a tax in November on sugary drinks, including soda.

But the odds are that you’ve been paying soda taxes for years.

A total of 34 states and the District of Columbia apply sales taxes to sugar-sweetened sodas. Those taxes average 3.55% nationwide. Seven states offer additional non-sales taxes, privilege or license fees.

During the November 2014 election, more than three-quarters of Berkeley voters were in favor of Measure D, which placed a 1-cent-per-ounce tax on soft drinks, according to the Alameda County Registrar of Voters. That tax is slated to kick in on Jan. 1.

“These are small taxes,” UIC School of Public Health professor Dr. Jamie Chriqui of the state taxes already in existence. “They are so tiny compared to the 1-cent-per-ounce tax or the 20% tax that the public-health community has recommended.”

The key difference with Berkeley is that this Sugar-Sweetened Beverages (SSB) tax is applied at the shelf — an excise tax — and is the first in the nation to tax distributors of drinks at a penny per ounce rate.

Opponents say the SSB tax is a loophole for taxation that is otherwise illegal in the state.

“In the state of California it is illegal to directly tax food products,” No on D campaign spokesman Roger Salazar said.

That’s according to California Proposition 163, which passed on the 1992 ballot, prohibiting taxes on food products used for home consumption and defining candy, snack foods and bottled water as food products.

“To get around that, they [the city of Berkeley] are taxing the distributor in the hopes that that will drive up the price of the product,” Salazar said. “That is why they took the approach of not taxing these products directly.”

“Our support for an excise tax goes back to the main reasons presented by public-health policy experts,” said Sara Soka, campaign manager for the Yes on D campaign. “Any price changes are more likely to be noticed on the shelf by consumers and affect someone’s choice to buy the product.”

Taxes vary widely even within states, and taxes on soda purchased in vending machines tend to be 1% higher than soda sold in food stores.

Terrence Horan/MarketWatch

Fourteen states tax food products at a rate of 1% to 1.5%.

“Some of those jurisdictions already tax soda but don’t tax food because their definition of food does not include soda,” Chriqui said.

“Distributors and retailers will probably respond differently, and over time,” Soka said.

But there’s a chance that store owners will instead spread the cost among a number of products, Salazar said.

“It could be all drinks, or even all their groceries,” he said. “There’s no clarity as to how they would do it.”

Denmark recently repealed a similar “fat tax” after its first year, amid criticism that it raised food prices, made Danish products more expensive than imported foods and increased administrative costs.

“Most of these have been attempts to generate revenue under the guise of public health as a selling point,” he said. “Ultimately the goal has been to generate more tax revenue, and that’s a hard thing to sell to people.”

The current state-tax schemes are “generally are too low to have a meaningful impact on overall consumption and weight/obesity,” according to a report in the Journal of Public Health Policy.

“The studies that linked soda taxes to weight outcomes showed minimal impacts on weight; however, they were based on existing state-level sales taxes that were relatively low,” according to the report.

The tax will be effective in both raising revenue and curbing obesity, said Jim O’Hara, the director of health-promotion policy at the Center for Science in the Public Interest.

“Excise taxes are in fact what is needed, the same way that they have shown themselves to be effective in the fight against tobacco,” he said.

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